Under the offer made last September, Facebook said it would pay $9.5 million to set up a privacy foundation to fund projects promoting the cause of online privacy in return for the lawsuit against it to be dropped. It also said that it would formally drop the Beacon service.

But in complaints filed with the U.S. District Court for the Northern District of California last week, opponents of the settlement called it meaningless. In documents filed with the court they argued that all Facebook was doing was paying itself to fund a privacy foundation over which it would exercise undue control.

In response, a Facebook spokesman said today that the objections were false and called the settlement “fair” and in the interest of the members of the class-action suit.

The dispute stems from a lawsuit filed in August 2008 against Facebook. It alleged that Facebook and Beacon affiliates such as Blockbuster and Overstock.com had violated several federal privacy laws, including the Electronic Communications Privacy Act and the Video Privacy Protection Act, when they shared data about Facebook users with each other. As part of its settlement offer, Facebook said it would shut down Beacon.

However, in a complaint filed last week in U.S. District Court for the Northern District of California, consumer advocacy group Public Citizen, of Washington D.C, and some Facebook users asked the court to reject the offer.

In their complaint, the groups said that the proposed settlement did nothing to compensate victims whose privacy may have been compromised by Beacon. Other than formally disbanding a program that Facebook had voluntarily already discontinued, the settlement offered little else the groups complained.

“At the heart of the proposed settlement is the foundation that Facebook will pay itself to establish,” one of the complaints noted. The settlement also “improperly” gives Facebook a direct role in drafting the mission and bylaws of the proposed foundation and in appointing board members.

In fact, one of the three initial directors of the foundation is a Facebook employee and chief lobbyist, the complaint noted. “In exchange for what amounts to worthless “relief,” all class members will release all Beacon-related claims against Facebook and the Beacon merchant partners,” the compliant said.

In e-mailed comments, Facebook spokesman Barry Schnitt blasted such objections. “The suggestion that Facebook would pay itself is absurd, misunderstands how foundations work, and totally disregards the bylaws of this foundation and the enforcement powers of the court,” Schnitt said.

The bylaws of the proposed foundation make it clear that its purpose is to fund and sponsor programs to educate users, regulators and enterprises on online privacy issues, Schnitt said. He added that the foundation will be an independent entity run by three well known and respected privacy advocates.

“The objectors are treating this like the damages phase of a trial we lost. Instead, this is a settlement among parties,” he said. If the Judge approves the settlement, the court will have the jurisdiction and the authority to enforce the bylaws of the foundation, Schnitt said.

“It seems somewhat disingenuous for some of the groups to, on the one hand, point out that the settlement is flawed and, on the other, to suggest that they and similar groups should receive the money from that settlement,” he added.